MALAYSIA’S retail sector suffered a 1.2% drop in sales in the first quarter of this year compared with the same period last year, as consumers continue to tighten their belts due to the weakened economy.

The latest report by Retail Group Malaysia follows last year’s slump of 4.4% in retail sales following the introduction of the Goods and Services Tax (GST), said the group’s managing director Tan Hai Hsin.

“This latest poor quarterly growth rate was due to weak Chinese New Year sales in January 2017. Shoppers were careful in their spending on festive goods,” he said.

Another factor that had affected consumer spending, Tan said, was an increase in the price of retail goods due to the weak Malaysian ringgit and higher fuel prices.

“The average pump price for RON95 petrol during the first quarter of 2017 was the highest since the implementation of managed float system in December 2014.

“Consumers are becoming more cautious as they are burdened by the high cost of living,” he told The Malaysian Insight.

Tan said that Consumer Sentiment Index climbed to 76.6 in the last quarter, citing the Malaysian Insititute of Economic Research, but was still below the 100-point threshold level of confidence.

He said that with the exception of the Pharmacy and Personal Care sub-sector, all retail sub-sectors recorded declines in their retail businesses during the first quarter of 2017.

“Department store cum supermarket sub-sector suffered from another negative growth rate of 3.7% during the first quarter of 2017 as compared to the same period a year ago. This is the third consecutive quarterly decline,” he said.

Tan said that similarly, the supermarket and hypermarket sub-sector reported another worse-than-expected decline of 4.8% during the first quarter of 2017. This latest result is the worst among the retail sub-sectors.

Tan said after a strong recovery for the most part of 2016, the business of fashion and fashion accessories sub-sector turned red with a growth of -0.1%.

Tough year ahead

Tan said while retailers’ associations had projected an increase in sales by the second quarter of 2017, trading conditions remain tough for retailers throughout the year.

Challenges include higher cost of goods and rising operation costs for retailers.

“The recovery of retail sales is highly dependent on external economic demand and ringgit performance for the rest of the year,” he said.

Malaysia Shopping Mall Association adviser H.C. Chan said the retail industry continued to face the challenges of oversupply of mall space and the growth of e-commerce.

“There is oversupply of retail space in the Klang Valley and people are increasingly buying online. This has been affecting certain trade categories, as consumers move online. However, F&B, leisure and entertainment are holding strong,” Chan told The Malaysian Insight.

He said that in order to be more competitive, malls and retailers have focused their efforts in providing more “value marketing” for their consumers, ranging from discounts, extended service packages, and events, among others.

“The government had announced in March that the inflation rate was 5.1%, which is the highest in nine years. But subsequently, headline inflation dropped to 4.4% in April, which is positive.

“It is good if inflation can be curbed as the value of money will be affected. This has a significant bearing on consumer spending,” he said.

Chan said retailers were looking into innovative ways of encouraging spending, by offering more good value retailing, bundled promotions and exclusives buys.

“Some retailers have gone for volume, albeit at a lower margin, to sustain sales performance in this challenging market. And consumers respond positively to this,” he said. – July 15, 2017.